經(jīng)濟(jì)學(xué)原理第三版習(xí)題答案(I)

1、SOLUTIONS TO TEXT PROBLEMS:Quick Quizzes1.Oligopoly is a market structure in which only a few sellers offer similar or identical products. Examples include the market for tennis balls and the world market for crude oil. Monopolistic competition is a market structure in which many firms sell products

2、 that are similar but not identical. Examples include the markets for novels, movies, CDs, and computer games.2.If the members of an oligopoly could agree on a total quantity to produce, they would choose to produce the monopoly quantity, acting in collusion as if they were a monopoly.If the members

3、 of the oligopoly make production decisions individually, they produce a greater quantity than the monopoly quantity because self-interest leads them to produce more than the monopoly quantity.3.The prisoners dilemma is the story of two criminals suspected of committing a crime, in which the sentenc

4、e that each receives depends both on his or her decision whether to confess or remain silent and on the decision made by the other. The following table shows the prisoners choices:Bonnie's DecisionConfessRemain SilentClyde'sDecisionConfessBonnie gets 8 years Clyde gets 8 yearsBonnie gets 20

5、yearsClyde goes freeRemain SilentBonnie goes freeClyde gets 20 yearsBonnie gets 1 year Clyde gets 1 yearThe likely outcome is that both will confess, since thats a dominant strategy for both.The prisoners dilemma teaches us that oligopolies have trouble maintaining monopoly profits because each olig

6、opolist has an incentive to cheat.4.It is illegal for businesses to make an agreement about reducing quantities or raising prices.Antitrust laws are controversial because it isnt always clear which kinds of behavior these laws should prohibit, such as resale price maintenance, predatory pricing, and

7、 tying.Questions for Review1.If a group of sellers could form a cartel, they would try to set quantity and price like a monopolist. They would set quantity at the point where marginal revenue equals marginal cost, and set price at the corresponding point on the demand curve.2.Firms in an oligopoly p

8、roduce a quantity of output greater than the level produced by monopoly at a price lower than the monopoly price.3.Firms in an oligopoly produce a quantity of output less than the level produced by a perfectly competitive market at a price greater than the perfectly competitive price.4.As the number

9、 of sellers in an oligopoly grows larger, an oligopolistic market looks more and more like a competitive market. The price approaches marginal cost, and the quantity produced approaches the socially efficient level.5.The prisoners' dilemma is a game between two people or firms that illustrates w

10、hy it is difficult for opponents to cooperate even when cooperation would make them all better off. Each person or firm has a great incentive to cheat on any cooperative agreement to make himself or itself better off.6.The arms race, advertising, and common resources are some examples of how the pri

11、soners' dilemma helps explain behavior. In the arms race during the Cold War, the United States and the Soviet Union couldn't agree on arms reductions because each was fearful that after cooperating for a while, the other country would cheat. In advertising, two companies would be better off

12、 if neither advertised, but each is fearful that if it doesn't advertise, the other company will. When two companies share a common resource, they would be better off sharing it. But fearful that the other company will use more of the common resource, each company ends up overusing it.7.Antitrus

13、t laws prohibit firms from trying to monopolize a market. They are used to prevent mergers that would lead to excessive market power in any firm and to keep oligopolists from acting together in ways that would make the market less competitive.8.Resale price maintenance occurs when a wholesaler sets

14、a minimum price that retailers can charge. This might seem to be anticompetitive because it prevents retailers from competing on price. But that is doubtful because: (1) if the wholesaler has market power, it can exercise such power through the wholesale price; (2) wholesalers have no incentive to d

15、iscourage competition among retailers since doing so reduces the quantity sold; and (3) maintaining a minimum price may be valuable so retailers will provide customers with good service.Problems and Applications1.a.OPEC members were trying to reach an agreement to cut production so they could raise

16、the price.b.They were unable to agree on cutting production because each country has an incentive to cheat on any agreement. The turmoil is a decline in the price of oil because of increased production.c.OPEC would like Norway and Britain to join their cartel so they could act like a monopoly.2.a.If

17、 there were many suppliers of diamonds, price would equal marginal cost ($1,000), so the quantity would be 12,000. b.With only one supplier of diamonds, quantity would be set where marginal cost equals marginal revenue. The following table derives marginal revenue:Price(thousands of dollars)Quantity

18、(thousands)Total Revenue(millions of dollars)Marginal Revenue(millions of dollars)8540 -7642 26742 058402493643 103062 112281 1212 10With marginal cost of $1,000 per diamond, or $1 million per thousand diamonds, the monopoly will maximize profits at a price of $7,000 and a quantity of 6,000. Additio

19、nal production beyond this point would lead to a situation where marginal revenue is lower than marginal cost.c.If Russia and South Africa formed a cartel, they would set price and quantity like a monopolist, so the price would be $7,000 and the quantity would be 6,000. If they split the market even

20、ly, they would share total revenue of $42 million and costs of $6 million, for a total profit of $36 million. So each would produce 3,000 diamonds and get a profit of $18 million. If Russia produced 3,000 diamonds and South Africa produced 4,000, the price would decline to $6,000. South Africa's

21、 revenue would rise to $24 million, costs would be $4 million, so profits would be $20 million, which is an increase of $2 million.d.Cartel agreements are often not successful because one party has a strong incentive to cheat to make more profit. In this case, each could increase profit by $2 millio

22、n by producing an extra thousand diamonds. However, if both countries did this, profits would decline for both of them.3.a.Buyers who are oligopolists try to decrease the prices of goods they buy.b.The owners of baseball teams would like to keep players' salaries low. This goal is difficult to a

23、chieve because each team has an incentive to cheat on any agreement, since they will be able to attract better players by offering higher salaries.c.The salary cap would have formalized the collusion on salaries and helped to prevent any team from cheating.4.Many answers are possible, such as pickin

24、g which movie to see with your friend or negotiating the price of a car. The common link among all the activities is that there are just a few people involved who act strategically.5.a.If Mexico imposes low tariffs, then the United States is better off with high tariffs, since it gets $30 billion wi

25、th high tariffs and only $25 billion with low tariffs. If Mexico imposes high tariffs, then the United States is better off with high tariffs, since it gets $20 billion with high tariffs and only $10 billion with low tariffs. So the United States has a dominant strategy of high tariffs.If the United

26、 States imposes low tariffs, then Mexico is better off with high tariffs, since it gets $30 billion with high tariffs and only $25 billion with low tariffs. If the United States imposes high tariffs, then Mexico is better off with high tariffs, since it gets $20 billion with high tariffs and only $1

27、0 billion with low tariffs. So Mexico has a dominant strategy of high tariffs.b.A Nash equilibrium is a situation in which economic actors interacting with one another each choose their best strategy given the strategies others have chosen. The Nash equilibrium in this case is for each country to ha

28、ve high tariffs.c.The NAFTA agreement represents cooperation between the two countries. Each country reduces tariffs and both are better off as a result.d.The payoffs in the upper left and lower right parts of the box do reflect a nation's welfare. Trade is beneficial and tariffs are a barrier t

29、o trade. However, the payoffs in the upper right and lower left parts of the box are not valid. A tariff hurts domestic consumers and helps domestic producers, but total surplus declines, as we saw in Chapter 9. So it would be more accurate for these two areas of the box to show that both countries&

30、#39; welfare will decline if they imposed high tariffs, whether or not the other country had high or low tariffs.6.a.Dropping the letter grade by two letters (e.g., A to C) if you have no fun gives the payoffs shown in this table:Your DecisionWorkShirkClassmate'sDecisionWorkYou get a CClassmate

31、gets a CYou get a BClassmate gets a DShirkYou get a DClassmate gets a BYou get a DClassmate gets a Db.The likely outcome is that both of you will shirk. If your classmate works, you're better off shirking, because you would rather have an overall B (a B grade and fun) then an overall C (an A gra

32、de and no fun). If your classmate shirks, you are indifferent between working for an overall D (a B grade with no fun) and shirking for an overall D (a D grade and fun). So your dominant strategy is to shirk. Your classmate faces the same payoffs, so will also shirk. But if you are likely to work wi

33、th the same person again, you have a greater incentive to work, so that your classmate will work, so you will both be better off. In repeated games, cooperation is more likely.7.Even though the ban on cigarette advertising increased the profits of cigarette companies, it was good public policy becau

34、se it reduced the quantity of cigarette consumption. Since cigarette consumption imposes an externality because of its health costs, the reduction in quantity is beneficial.8.a.The decision box for this game is:Braniff's DecisionLow PriceHigh PriceAmerican'sDecisionLow PriceLow profits for B

35、raniffLow profits for AmericanVery low profits for BraniffHigh Profits for AmericanHigh PriceHigh profits for BraniffVery low profits for AmericanMedium profits for BraniffMedium profits for Americanb.If Braniff sets a low price, American will set a low price. If Braniff sets a high price, American

36、will set a low price. So American has a dominant strategy to set a low price.If American sets a low price, Braniff will set a low price. If American sets a high price, Braniff will set a low price. So Braniff has a dominant strategy to set a low price.Since both have a dominant strategy to set a low

37、 price, the Nash equilibrium is for both to set a low price.c.A better outcome would be for both airlines to set a high price; then they would both get higher profits. But that outcome could only be achieved by cooperation (collusion). If that happened, consumers would lose because prices would be h

38、igher and quantity would be lower.9.a.If Jones has 10 cows and Smith has 10, for a total of 20 cows, each cow produces $4,000 of milk. Since a cow costs $1,000, profits would be $3,000 per cow, or $30,000 for each farmer.If one farmer had 10 cows and the other farmer had 20 cows, for a total of 30 c

39、ows, each cow produces $3,000 of milk. Profits per cow would be $2,000, so the farmer with 10 cows makes $20,000; the farmer with 20 cows makes $40,000. If both farmers have 20 cows, for a total of 40 cows, each cow produces $2,000 of milk. Profit per cow is $1,000, so each farmer's profit is $2

40、0,000. The results are shown in the table:Jones Decision10 cows20 cowsSmith'sDecision10 cows$30,000 profit for Jones$30,000 profit for Smith$40,000 profit for Jones$20,000 profit for Smith20 cows$20,000 profit for Jones$40,000 profit for Smith$20,000 profit for Jones$20,000 profit for Smithb.If

41、Jones had 10 cows, Smith would want 20 cows. If Jones had 20 cows, Smith would be indifferent (get the same profit) if he had 10 or 20 cows. So Smith has a dominant strategy of having 20 cows.If Smith had 10 cows, Jones would want 20 cows. If Smith had 20 cows, Jones would be indifferent (get the same profit) if he had 10 or 20 cows. So Jones has a dominant strategy of having 20 cows.The Nash equilibrium is for each farmer to have 20 cows, s